XL Capital, Aspen Insurance, St. Jude lift slightly; SafeNet prices; Calpine grinds lower

By Rebecca Melvin

Princeton, N.J., Dec. 7 - The convertible market was active Wednesday with the debut of three new issues and activity that included a par bid in the gray on SafeNet Inc., which priced $225 million of five-year convertibles after the close, market sources said.

In the secondary market, Calpine Corp.'s 6% convertibles slumped into the single digits before closing slightly higher, in volatile, active trade after bondholders of its second-lien debt said the debt-laden power producer was in default on some terms.

The San Jose, Calif.-based company late Wednesday informed the Delaware court, where a case involving its bondholders is underway, that it avoided immediate default and planned to negotiate overnight with holders toward an agreement.

"With another challenge in the courts, people were seeing filing for bankruptcy sooner rather than later," a Connecticut-based buysider said. "And holders of unsecured paper got hit the most."

Elsewhere, the 0% convertibles of CSX Corp. were down about 0.50 point in active trade. Meanwhile news that Atmel Corp. bought back almost one-third of its 0% convertibles due 2021 between Dec. 1 and Dec. 6 spurred some interest in those notes, a sellside trader said.

Each of the new issues, XL Capital Ltd.'s 7% mandatories, Aspen Insurance Holdings Ltd.'s 5.625% preferreds, and St. Jude Medical Inc.'s 2.8% convertibles, edged up in trade on Wednesday, although their underlying shares were mixed.

SafeNet prices $225 million convertibles

SafeNet priced $225 million of subordinated convertible notes late Wednesday to yield 2.50% with an initial conversion premium of 25%. The notes priced in the middle of talk, which was for a coupon of 2.25% to 2.75% with an initial conversion premium of 22.5% to 27.5%, according to a syndicate source.

Merrill Lynch was the bookrunner of the Rule 144A issue, which has a $50 million greenshoe.

One potential buysider was unimpressed with the talk.

"It's like the 2.8% coupon on St. Jude. The coupon is not going to cut it. If the bond market backs up, if they get taken over...there's no room for error. The pricing isn't worth the time to be consistently looking at these things," a New Jersey-based multi-strategy fund manager said.

Nevertheless the SafeNet deal modeled out 2.85% cheap at the midpoint of talk, a New York-based sellside trader said, using a 32.5% volatility and a spread of 425 to 450 basis points over Treasures.

He said the Belcamp, Md.-based security-services software company has a significant amount of its business tied to contracts with the U.S. Defense department.

About $50 million of the SafeNet convertible proceeds will be used to buy back stock in privately negotiated transactions, the company said in a press release. The remainder of proceeds will be used for general corporate purposes and possibly for future acquisitions.

St. Jude prices toward cheap end

The new 2.8% convertibles of St. Jude opened Wednesday at about 100.25 and closed slightly higher at 100.375, according to a syndicate source.

The bonds traded actively, according to one New York-based sellside shop.

"It was one of the biggest days of the year" in terms of activity, the sellside convertibles trader said, attributing the action to three new deals and more on the calendar.

The compressed calendar and the fact that there are only about two more weeks in which to get business done in 2005 has meant more activity, a Connecticut-based buysider said.

St. Jude Medical priced $600 million of 30-year convertibles at par to yield 2.8% with an initial conversion premium of 25%. The convertible senior debentures priced toward the cheap end of the talk, which was 2.375% to 2.875%.

Sold via bookrunner Banc of America Securities LLC, the deal included an option to purchase an additional $60 million.

The debentures are non-callable for one year and have puts in years one, three, five, 10, 15, 20 and 25. There is dividend and takeover protection.

The company intends to use proceeds to repay commercial paper issued to fund its previously announced acquisition of Advanced Neuromodulation Systems Inc.

St. Paul, Minn.-based St. Jude Medical is a medical device maker.

XL Capital closes at 25.3

XL Capital, one of two issuers Wednesday in the insurance business and based in Bermuda, priced $745 million of mandatory convertibles at par of $25 to yield 7% with an initial conversion premium of 24%, according to a syndicate source.

The deal was upsized from $650 million with a $97.5 million greenshoe. The final deal included no greenshoe.

The notes closed at 25.3, according to a syndicate source. Goldman Sachs & Co. and Citigroup Corporate and Investment Banking were joint bookrunners for the registered deal that priced at the rich end of talk for a coupon of 7% to 7.50% and an initial conversion premium of 20% to 24%.

The 29.8 million equity units have a maturity of 3.18 years and were priced concurrently with $2.2 billion in ordinary shares.

The insurance and reinsurance company plans to use gross proceeds of $2.9 billion from both deals to fund general corporate purposes, including replenishment of certain subsidiary unit capital bases following third quarter catastrophe losses.

XL's share price was up 90 cents, or 1.4%, to $66.55.

Aspen deal adds, but shares lower

The $200 million of convertibles that Aspen Insurance priced at par of $50 closed up at 50.25, according to a syndicate source. But its shares sank 64 cents, or 2.6%, to $24.03.

The perpetual Preferred Income Equity Replacement Securities, or Piers, with a dividend of 5.625% and an initial conversion premium of 22%, priced at the cheap end of talk, which was for a dividend of 5.125% to 5.625% and an initial conversion premium of 22% to 27%.

The perpetual Piers were sold via bookrunner Lehman Brothers and included an option to purchase an additional $30 million.

Concurrent with the preferreds, Aspen offered about $200 million of common shares and shareholder Wellington Underwriting plc agreed to sell 6 million shares as well.

Moody's Investors Service assigned a Ba1 rating to the Aspen Insurance Piers. The rating agency also said the A2 insurance financial strength ratings of Aspen Insurance UK Ltd. and Aspen Insurance Ltd., the principal operating entities of the group, and the Baa2 senior debt rating of Aspen Insurance Holdings are currently on review for possible downgrade. Therefore, the new Piers it will be on review for possible downgrade, too.

Moody's said it will treat the instrument as 50% equity and 50% debt in the adjusted financial leverage calculation.

Aspen will use proceeds from both offerings to make contributions to the capital and surplus of its operating subsidiaries and for general corporate purposes.

Hamilton, Bermuda-based Aspen is an insurance and reinsurance company.

Calpine grinds lower

The Calpine 6% convertibles traded to as low as 8.5 bid, 9 offered but closed higher at 12 amid a swirl of news on the tape regarding bondholders threatening to push the company into bankruptcy.

The 4.75% convertibles also traded down sharply into the high teens before settling back up at about 25, according to market sources.

Wilmington Trust Corp., as trustee for Calpine's second-lien holders, had served Calpine with a notice saying the company faced having to pay off all $3 billion of the second-lien notes unless it immediately repaid the almost $312 million that a court found it improperly spent to buy fuel.

Calpine asked the court to issue a temporary restraining order to prevent Wilmington from enforcing the default notice, saying it would trigger other defaults and irreversibly damage the company.

Atmel trades little changed

The 0% convertibles of Atmel looked little changed at 47.50 bid, 48 offered after the San Jose, Calif.-based semiconductor company said that for six days starting Dec. 1 it repurchased $81.3 million, or about one-third, of its 0% convertibles outstanding.

At the time of the purchase, the notes had an accreted value of about $81 million, the company said in a regulatory filing. As of Sept. 30, the accreted value of all the notes was about $221 million. The company said further redemptions were not planned.

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